Cyprus victor vows to finalise bailout

Anastasiades' victory was a relief to most EU leaders, including Germany's Angela Merkel

Story highlights

  • Nicos Anastasiades captured 57.5 per cent of the vote in a run-off against communist rival Stavros Malas
  • Cyprus's bailout has become increasingly tendentious within the international community
  • Anastasiades signalled he was not prepared to meet some demands made by international lenders

The leader of Cyprus's centre-right party vowed to resume talks quickly with international bailout lenders and finalise a €17bn rescue by the end of March as he swept to an overwhelming victory in the island's presidential election on Sunday.

Nicos Anastasiades, who captured 57.5 per cent of the vote in a run-off against communist rival Stavros Malas, said in an interview he believed Cyprus posed "a systemic risk for the eurozone" and would need agreement in a matter of weeks to shore up its teetering banking sector and prevent the government from running out of cash.

"We need timely financial support to recapitalise our banks as well as to cover immediate and medium-term fiscal needs," he said.

Mr Anastasiades' victory was a relief to most EU leaders, including Germany's Angela Merkel, who had grown exasperated with outgoing president Demetris Christofias, a communist who failed to secure a deal for more than a year and repeatedly flirted with Moscow as an alternative to an EU and International Monetary Fund bailout.

"The Cypriot people have given Mr Anastasiades a strong mandate to implement his programme of reform and do what it takes to ensure fiscal and financial stability," said José Manuel Barroso, president of the European Commission.

But while eurozone officials believe Mr Anastasiades will take a more pragmatic approach, some who have met his team already have raised concerns that he too appears reluctant to take the sort of drastic action needed to return the country to fiscal health.

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In the interview conducted before Sunday's election results were released, Mr Anastasiades signalled he was not prepared to accede to some of the demands made by international lenders, particularly sweeping privatisations, which some in Brussels believe can raise as much as €2bn.

"We'd like to discuss whether we can postpone [privatisation] for perhaps three years, depending on the pace of recovery and progress with other reforms," Mr Anastasiades said. "There are several possible scenarios . . . but we have to preserve social cohesion and peaceful labour relations."

Mr Anastasiades faces stiff resistance to many of the bailout demands at home, a disaffection that was made clear in the election result. While Mr Anastasiades won comfortably, 18.4 per cent of voters abstained, underscoring popular discontent.

Managers at the port authority, for example, have refused to present updated accounts as requested by the finance ministry ahead of bailout negotiators' expected to return shortly after the new government takes office on March 1.

Despite its relatively small size, Cyprus's bailout has become increasingly tendentious within the international community, with questions over whether some of the demands made by the IMF and northern eurozone countries could reignite uncertainty in financial markets.

A €17bn rescue would raise Cyprus' sovereign debt levels to about 145 per cent of its economic output, levels the IMF and its EU allies believe are unsustainable. As a result, creditors have been looking for ways to shrink its size by radically restructuring the country's banking system, potentially by forcing losses on large deposit holders -- many of which are believed to be Russian oligarchs.

But European Commission officials have warned that any attempt to "bail in" Cypriot depositors -- a route not taken in any previous bailout -- could lead depositors in other eurozone banks quickly to withdraw their money.

Mr Anastasiades said a haircut of large depositors would be "catastrophic" for Cyprus and could have a contagion effect on other eurozone countries, adding that Olli Rehn, the EU economic affairs chief, shared his view.

"It would bring uncertainty and could also threaten the very existence of the eurozone," he said. "Our banking sector holds significant liquid deposits and can be restructured as a pillar of economic growth."

A German-led group of creditor countries have said they want to completely restructure Cyrpus's economy to make it less reliant on the financial sector, which is now about eight times its gross national product. German officials have criticised Nicosia for allowing its banking system to become a haven for tax avoidance and money laundering, something Cypriot officials have denied.

Still, Mr Anastasiades said he was ready to assuage concerns about money laundering, and to take any new measures required to deal with the problem.

"We are certainly not complacent, we are committed . . . to implementing any further improvements deemed necessary," Mr Anastasiades said.

But he rejected as "a conflict of interest" a proposal mooted by eurozone finance ministers, and provisionally supported by the previous government, to appoint a private firm to audit Cyprus's financial sector to see whether it had complied with laws currently on the books.